A day after the government announced a Rs 200 cut in the price of a 14 kg LPG cylinder, sources on August 30 told CNBC-TV18 that oil marketing companies (OMCs) do not require compensation or subsidy on the latest cut.

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OMCs have headroom on LPG currently, sources said, adding that it is difficult to estimate the cost impact of price cut at this stage. The government will assess the situation as per offtake and international prices, they said.

Sources also clarified that the government subsidy is limited to 75 lakh new Ujwala connections. The government has said it will give 75 lakh new gas connections for free in a bid to clear applications related to Pradhan Mantri Ujjwala Yojana (PMUY). With these new connections, the number of PMUY beneficiaries will increase to 10.35 crore.

For the Ujjwala scheme beneficiaries, the price drop of an LPG cylinder will be Rs 400 — Rs 200 as price cut and Rs 200 as existing subsidy. For consumers who are not beneficiaries of the Ujjwala scheme, the price cut will be by Rs 200 only. The price cut is effective from August 30.

Following the price cut announcement, Vinay Jaising of JM Financial Services said he believes there's more to this cut in LPG prices than sheer politics. "I will not be surprised if they cut petrol and diesel prices, as far as the excise duty is concerned as well. I don't think this is to be linked to politics."

Meanwhile, brokerage firm Citi estimates that the consumer savings from LPG price cut for the rest of the 2023-24 fiscal could be Rs 20,000 crore(0.07 percent of GDP).

The market focus might now turn towards possible petrol/diesel prices cut, it said. The brokerage, however, said that unlike in LPG, international prices do not give OMCs room to cut

petrol/diesel retail prices on their own.

“Any potential fall in petrol/diesel prices may need to come via excise duty cuts. While the government estimates that the immediate fiscal cost of the LPG price cut is minimal,” Citi said.

First Published:Aug 30, 2023 8:42 AM IST